Are We Moving Towards ‘Unlocked’ Cell Phones?

The House yesterday passed a bill that would allow cell phones users to “unlock” their devices so they could be used with any carrier. The bill follows a surprise ruling last year by the Library of Congress which made unlocking a cell phone illegal.

A cell phone or tablet is locked when it is tethered to one particular service provider. If you try to use that device with another company’s cellular service, either here at home or overseas, the device won’t work. Typically, a locked smartphone doesn’t mean you can’t transfer a SIM card from another phone, just that the SIM card and the new phone have to be from the same provider.

Wireless carriers lock their smartphones to their networks as a way to get consumers to commit to a long term contract. In return, the consumer gets a heavily subsidized phone and the ability to upgrade at a later date, although always with the same carrier.

Although locked devices and long term contracts are the norm in the U.S., that’s far from the case overseas. In some European markets for example, the overwhelming majority of new phones are unlocked, allowing customers to switch between carriers whenever they want. Some people believe this extra flexibility can result in a financial advantage over the usual life of a phone.

This is especially true if the smartphone owner travels a lot. Anyone who has recently landed at Heathrow or one of the other major European airports will be familiar with the pre-paid SIM card dispensers that are stationed in all the arrival halls. If you have an unlocked device, you can just buy a local SIM card, pop it in your phone, and avoid those costly roaming charges that would otherwise greet you when you returned back home.

Of course, locking a phone to a service provider is not just about tying the consumer to a network. Manufacturers like Apple have long been wary of unlocking the iPhone for example, because they want to retain control over all the applications that can be installed on the device. To get around this, some owners and third parties have resorted to unauthorized software changes, or what is commonly referred to as “jailbreaking” a phone. While jailbreaking can result in more user-flexibility in terms of installing apps, it invariably invalidates the phone’s warranty and breaches the carrier’s Terms of Service.

Prior to the House bill, the Federal Communications Commission (FCC) and the main wireless carriers had reached a tentative agreement whereby the carriers would notify customers when they become eligible for an unlocked phone, typically at the end of their two-year contract. Under the FCC agreement, the carriers would also have to respond to requests for unlocking a phone within two business days.

However, both the House bill – which faces an uncertain future in the Senate – and the FCC agreement leave a lot of unanswered questions, including how, if at all, the FCC would try to regulate the inevitable secondary market for unlocked phones.